June 27, 2012

We don’t know much about how the US Chamber of Commerce funds its political campaigns. In fact, that’s the essential feature of its operations—as a 501(c)(6) trade organization, the chamber has no obligation to disclose who funds its electioneering campaigns, and so corporations can give massive amounts of money to the chamber without having any fingerprints on the resulting attack ads that hammer Democrats and push for industry deregulation.

But it’s a funny thing—every time we get a glimpse into how the chamber operates, there are whiffs of impropriety.

For years, good-government groups have been raising red flags about potential tax fraud that the chamber may have committed in 2003 and 2004, in which it may have used $18 million illegally funneled through charitable groups to support a campaign to roll back the Sarbanes-Oxley financial regulation, “reform” tort laws, and defeat Democrats in the federal elections. Now, New York Attorney General Eric Schneiderman has taken up the cause, and issued wide-ranging subpoenas Wednesday targeting those transactions. The New York Times aptly calls this the “first significant [investigation] in years into the rapidly growing use of tax-exempt groups to move money into politics.”

There are three players in this alleged scheme—the US Chamber of Commerce itself and these two organizations:

The Starr Foundation. This is a 501(c)(3) charitable group that, during the period in question, was headed by AIG chairman Maurice Greenberg. In the mid-aughts—before he was forced to resign from AIG amidst an investigation by another New York attorney general, Eliot Spitzer—Greenberg was a vocal opponent of financial regulation and Sarbanes-Oxley in particular, saying the law had a “chilling effect on the economy” and would discourage financial firms from “risk-taking.” He also vowed to wage “all-out war” to push for tort reform that limited class-action lawsuits. (As an insurer, AIG had good reason to hate big lawsuits, and in 2003, AIG lost $1.8 billion and blamed “egregious jury awards and settlements for litigation.”)

The National Chamber Foundation. This is also a 501(c)(3) charitable organization, affiliated with the US Chamber of Commerce, that bills itself as a think tank that “drives the policy debate on key topics and provides a forum where leaders advance cutting-edge issues facing the US business community.” Interestingly, however, 86 percent of the NCF’s assets are outstanding loans to the chamber itself.

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As 501(c)(3) organizations, the Starr Foundation and NCF are strictly prohibited from engaging in political activities. But an exhaustive analysis of the two groups’ public filings by the good-government group US Chamber Watch revealed a very intriguing flow of money in 2003 and 2004.

First, the Starr Foundation gave over $18 million to the NCF in a series of grants over those two years. At the same time, NCF gave the Chamber $18,137,127 in loans.

While receiving this money, the chamber was launching a massive lobbying and advertising campaign that quite notably dovetailed with many of Greenberg and AIG’s political priorities, including rolling back Sarbanes-Oxley and creating nationwide tort reform.

US Chamber Watch alleged a clear pattern of misconduct. Its theory was that the Starr Foundation, run by the head of AIG, funneled $18 million of "charitable" money to the US Chamber to advance AIG’s political goals, using the NCF as a go-between to disguise the intent. It is expressly illegal for charitable money from 501(c)(3)s to be used for political goals, but that may be what happened.

(While it’s clear why the Starr Foundation would want to hide the potentially illegal political giving, it’s not yet clear to me why Greenberg couldn’t just have AIG give the money directly to the chamber, which alas would have been totally legal. If the theories are true, perhaps Greenberg had additional money parked at the Starr Foundation that he thought would augment the money AIG was already likely giving the chamber, and in his zeal to fight financial regulation, pushed it through these transactions).

This whole theory might fall apart if the chamber repaid the $18 million in loans to NCF—that could mean the chamber ultimately used its own money for the political campaigns. But in 2010 a chamber spokesperson admitted to the New York Times that the money was “listed…as a loan only in the most technical sense” and “was never intended to be paid back.” The chamber paid no interest on the loan until 2005 and didn’t start paying back principal until after US Chamber Watch started filing complaints with the IRS.

Schneiderman’s office is looking into how the $18 million was accounted for by the chamber and if it was a legitimate loan. He has issued an array of subpoenas targeting e-mails, bank records and other documents.

The ramifications could be huge if the US Chamber of Commerce, easily the biggest lobbying force in Washington, is found to have been engaged in tax fraud. The NCF could have its tax-exempt status retroactively revoked and could ultimately be shut down.

The investigation also dovetails into larger questions of political activities by tax-exempt organizations. The Obama campaign recently filed an FEC complaint about electioneering by Karl Rove’s nonprofit Crossroads GPS, and for years good-government groups have been filing similar complaints with the IRS.